1. The designated source(s) of external financing required to make the pro forma balance sheet balance is called the A) Retained earnings B) Plug variable C) Common stock account D) Cash flow variable E) Debt-to-equity ratio

2. Why is it important to determine if a firm is operating at full capacity or not?

A) Because a firm that is operating at less than full capacity will not need any external

financing.

B) Because in a firm that is operating at less than full capacity, fixed assets will typically

increase at the same percent as sales.

C) Because a firm with excess capacity has some room to expand sales without

increasing the investment in fixed assets.

D) Because, for a given increase in sales, firms operating at less than full capacity will

experience more rapid asset growth than firms that do operate at full capacity.

E) Because only firms operating at full capacity can grow rapidly and sustainably.

3. Diversifiable risk is the risk that:

A) Affects almost every financial asset that is sold in the marketplace.

B) Relates to the overall economy, such as inflation and GDP growth.

C) Is caused by an event that affects only a limited number of assets.

D) Serves as the basis for determining the amount of the risk premium.

E) Is generated by expected news.